Investing in property is a smart way to maximize your cash flow and save for the future. However, navigating through the world of property investments can be overwhelming. There is a lot to learn when trying to grow your business. A property investor should know the different rental yield factors, be knowledgeable about tax breaks, and understand property depreciation. These are essential steps in building an investment property portfolio. Unfortunately, tax laws are not written to be understood easily. Therefore, the process of investing in property comes with a bit of a learning curve.
In this post, we feature beneficial property investment tips.
1. Find Out If You Qualify for Tax Depreciation
Property depreciation is an important factor for rental property investors. Generally, the tax depreciation allows investors to deduct the costs from the taxes of buying and improving a property over its useful life. The Rental Property Depreciation lowers the taxable income, increasing your rental income. In 2017, the Federal Budget introduced some changes that affect property investors. The new tax depreciation laws apply for the properties bought after May 9th, 2017 and touches the plant and equipment categories in residential homes. The government has introduced a limit on plant and equipment deductions.
Under the new regulations, property investors can claim tax depreciation if they meet the following requirements:
You signed the property purchase contract before May 9th, 2017.
The purchase of the new property was after May 9th, 2017.
You hired a property builder to build a new home for investment purposes, and the property remains in your portfolio.
The property is renovated, and you have installed new plant and equipment.
Note that you will not be able to claim depreciation on plant and equipment.
2. Hire a Professional to Prepare the Property Depreciation Report
To determine which items are depreciable, you should prepare the property depreciation report. The report must cover all the depreciable items to avoid losing your income. We suggest you hire the services of a professional to help you prepare the property depreciation report. Qualified property inspectors have the knowledge and experience to know which items are depreciable. Besides, experts understand the rate at which the items are depreciable, and they will advise you on how to get more savings.
3. Save through Capital Gains Tax Exemptions and Discount
The Capital Gains Tax (CGT) is the tax you pay on your property capital gain upon selling the investment. The CGT is part of your income tax, and it is not calculated as a separate tax. However, if you made a capital loss, you cannot claim it against your other income. However, you can declare the loss to reduce the capital gain. There are four legal ways to reduce the CGT on an investment property. These are:
Take advantage of being an owner-occupier if the property serves as your primary place of residence. That way, the property is exempted from CGT.
Wait for up to a year to receive a 50% tax discount on the gain you make on the property.
Get the property reassessed before renting it out.
Take advantage of exemptions like the six-year rule.
Using these tips, you can save on Capital Gains Tax.
4. Ensure Best Property Maintenance Practices
Property maintenance is the secret to ensuring your property is attractive to renters. The property must be put into some profitable use, like renting, to get the property depreciation. In that regard, it is helpful if you engage a professional property management company to manage your property. That way, your property remains attractive to the renters.
We have looked at some smart property investment tips. If you are planning to invest in properties, make sure you factor in these tips. For assistance with property depreciation, talk to DEPPRO. We are the leading property depreciation experts serving Australians. We provide reliable and professional services when it comes to the management of your property.
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Are you contemplating if building a new structure on your piece of land is the right choice? Going for this approach gives you many benefits as an investor. You get your own builder and do some research about what the trends in real estate are, what people are willing to pay for. You want to do everything right to ensure that investing in property would give you a higher ROI from the tenants you wish to attract. Your newly-built property should be perfect for your intended market.
What Is the Process of Building on an Investment Property?
It starts when you purchase a piece of land with the intent of building a house on it with a specific design in mind. In involves finding a builder who will work on a contract for a period of several months. Usually, the construction company oversees the building process, while a bank pays them for their work. Other people ensure the building structure is done to specifications, such as building inspectors, building certifiers, and bank value’s. You also need the Council approval of your plans.
Your builder will update you on the progress of the construction of your investment property. The entire process is easy and exciting, creating new opportunities to invest in other locations. A smart real estate investor acknowledges the importance of diversity in locations, which is also beneficial in the investment portfolio.
What Are the Benefits?
Here are four reasons why building your investment property can give you financial gains even though there are many other attractive houses for sale out there:
You have the opportunity to get instant equity. It means, after buying land and building a property, you may have it re-valued to your lender. If you get a great deal acquiring your property and do an excellent job of building the right property, you can immediately add value to the place and obtain instant equity. You may be able to use that equity for other investments such as leveraging more properties.
Create a dual property. You can build an investment property that accommodates more than one tenant. You may also opt for a granny flat on your property. It is one of the benefits of building an investment property compared to buying an already-established property. You can construct a house anywhere you want on the property and decide on the architecture that will allow you possibilities in the future.
You qualify for depreciation. You can depreciate the construction cost of your newly built property for a period of years. The good thing about property depreciation Sydney is that you can also include the fittings and fixtures in your claim considering that everything is brand new. Also, if you have a positively geared property, you can maximize your tax benefits.
As the value of your investment property increase over time, it is inevitable that the building structure also experiences normal wear and tear. You can apply for depreciation deductions for this natural damage and be able to claim it under plant and equipment as well as capital works deductions.
Plant and equipment refer to the assets that you can remove from your investment property such as blinds, carpets, hot water systems, etc. On the other hand, capital works deductions include the building structure and permanently fixed items like doors, cupboards, sinks, and many others. Note that although most investors may apply for depreciation on investment property, the ones who construct a new house often receive higher deductions.
Attract many tenants. Besides depreciation, another benefit of building an investment property is you will attract a lot of tenants. Make sure your property is clean, stylish, convenient, and low-maintenance. Depending on the current market and your location, your property should give you a low vacancy rate and a steady rental yield.
When investing in property and building a new structure on it, there are many crucial factors to consider, ensuring you reap financial rewards. Learn everything about this type of property investment, including property taxes, market trends, potential risks, returns, depreciation, price, and so on. Also, the builders you choose contribute to how long your property can weather many years of use from renters, as this impact your rent revenue.
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When you claim depreciation it will help in enhancing cash flow from the property. As per ATO rules, businesses can specify depreciation as an expenditure while reporting the income tax return for a specific period. You may refer to tax depreciation tables 2015 when you mention depreciation as an expense. The amount will help in bringing down your taxable income. All residential property and commercial property have depreciation value. The tax regulatory authority summarizes and compiles these deductions in a report known as the tax depreciation schedule.
Here are the things that you must be aware of about the tax depreciation schedule:
1. Consult with a Quantity Surveyor
When you own an investment property, you will remain eligible to claim several tax deductions. It will directly bring down your taxable income. The deductions may include council rates, management fees, accounting fees, and maintenance expenses among others. Meanwhile, the depreciation deduction is separate as it is non-cash. It implies that you are not required to spend money when you seek to claim a depreciation deduction. Many property owners end up missing it. You should consult with an expert Quantity Surveyor who will help in maximizing claims and preparing a schedule. The main motto of all property investors in Australia is to improve their tax refund as much as possible.
The depreciation schedule contains two categories namely capital works and plant & equipment. Capital works involve the property’s actual cost, structures, renovations, and extensions. It has emerged as a vital part of the schedule. Fencing, paving, and sheds including some other permanent assets are also an integral part of this category. Meanwhile, plant & equipment includes assets such as furniture, flooring, and appliances, among others. The procedure of claim includes inspection of the building and fixing a value to each asset.
3. Lease days
The ATO permits you to claim depreciation till the time property remains available for lease. If you happen to be a new owner of an investment property, you will still be allowed for a claim. In this situation, the claim will mainly depend on the number of days the property remained available for rent. When you consult with experts and accountants, it is necessary to ask about partial claims within the year and pro-data deductions depending on the lease tenure. When you lodge your tax return Australia online, some vital details will already be filled for you.
4. Previous years claim
There are times when property owners tend to miss claiming depreciation deduction for many years due to ignorance. However, now ATO permits adjustment years after the first submission. This implies that you may file an amendment application for the missed depreciation deductions.
You must be aware of the aforementioned things about your tax depreciation schedule. Soon after you improve your property, you need to hire a professional Quantity Surveyor to help you prepare a detailed claim. Your motto must be to enhance your Yield on investment property. You should not get confused between repairs and capital works improvement. It is because the claim procedure for the two remains different. This is the reason why you need to hire a professional as it will ensure that your deductions are correct.
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Tax depreciation plays a vital role for property investors. It can significantly enhance cash flow for them when they prepare their property depreciation report effectively. They can also bring down their payable tax. The goal of an individual is to bring down tax liabilities and it can be achieved by claiming tax depreciation. And, when you desire to maximize your cash flow, you can, once again, do so by claiming all existing tax deductions.
Let’s understand the importance of tax depreciation for property investors with the following questions and answers:
Why You Must Claim Tax Depreciation Deduction?
Tax depreciation deduction, in combination with other existing tax deductions, can bring down your tax payable thus leaving more money in your pocket. A large number of investors are aware that they will be able to claim a tax deduction for property management fees, interest, repairs, and maintenance. However, some of them end up missing out on claiming tax depreciation deduction. As interest rates are quite low, tax depreciation deduction can significantly emerge as one of the major deductions claimable. They should effectively get their investment property depreciation schedule prepared with the help of reliable professionals. Depreciation deduction will bring down your taxable income and assist your property return a positive cash flow.
Will All Property Investors Require a Tax Depreciation Schedule?
It is imperative to investigate obtaining a tax depreciation schedule if you are keen to enhance all your capital allowance and tax depreciation. Owners of qualifying residential property or commercial space must order a tax depreciation schedule if they plan to claim one of their major tax deduction. You must also need to find out if your investment property qualifies or not. You may hire leading professionals who may carry out an estimate of tax depreciation deductions available for you.
How You May Claim Your Tax Depreciation Deduction?
The most convenient way to claim tax depreciation deduction is to get a tax depreciation schedule prepared from quantity surveyor tax depreciation. He will prepare your tax depreciation schedule for your accountant so that he may apply it at the right time. It is worth noting that your accountant is not eligible to assess the construction cost for generating this deduction for you. Some property investors are not aware of whether they need to pay for their tax depreciation schedule every year. It is important to note that they are not required to pay for it every year. It is because it is a one-time investment that remains completely tax-deductible in the year you buy it.
Tax depreciation holds great significance for property investors. You also need to get your depreciation schedules for rental property prepared from quantity surveyors. Free updates are allowed to be made where you have replaced, added, or improved assets or carried out small improvements. In case you have just completed major works and estimation is needed, you may have to pay a fee. You must not become such a property investor who fails to claim one of the biggest tax deductions available.
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Tax allowance has the potential of making investment property profitable and depreciation has emerged as a key allowance. Depreciation residential rental property is a vital tax allowance that you must not forget to claim. Depreciation is a crucial element of a property investor’s investment strategy. It is important to note that depreciation tax breaks remain higher on new properties. However, they are available for all kinds of investment properties whether they are old or new. A large number of investors end up missing out on important tax breaks every year.
Here is how depreciation will work for a new investment property:
What is depreciation?
According to the Australian Tax Office, depreciation can be described as when assets decline in value as they age. It can be described with an example. Let us take an instance of a $2000 desktop computer on which ATO allows four years. It will provide you a $500 deduction every year over a period of four years. You should be aware of how and when to lodge your Australian tax return.
How property investors will claim depreciation?
Property investors will be able to claim for depreciation in two ways namely capital works deductions and depreciating assets. Here is how it can be further described:
Capital works deductions: It is defined as the expense of building an investment property or construction expenditure. This form of depreciation normally spreads for more than 40 years. In other words, it is the duration that ATO claims that a building will last before it will require replacement. For example, if $2000 spent on building a new property, you may make a $5000 tax claim every year for 40 years (2.5 % per year).
Depreciating assets: According to ATO, depreciating assets will include items like electric equipment, computers, furniture, and motor vehicle, among others. For property investors, the depreciating assets will include items like stoves, light fittings, carpets, or even the rubbish bin. ATO has specified all the items that you will be able to claim and for how long when you prepare your property report. It is also known as the effective life by ATO according to which this is how long the assets will last before it will need replacement. For instance, a carpet’s estimated lifespan will be 10 years, the kitchen stove’s life will be 12 years, and the bin’s life will be 10 years.
How you may claim depreciation?
You will be able to claim depreciation using two methods namely the prime cost method and diminishing value method. The prime cost method provides you an equal tax deduction every year over the item’s effective life. Meanwhile, the diminishing value method will offer you bigger claims in the initial years of the item’s effective and smaller claims gradually. A large number of investors opt for the diminishing value method as it provides them with a higher depreciation rate in the beginning. If you face some confusion, your accountant will give you advice as to which method will work best for you.
The aforementioned details will give you an adequate idea of how depreciation will work for a new property. It is ideal to hire an expert quantity surveyor who will be able to prepare your tax depreciation schedules in an effective manner. They have expertise in identifying the value of construction work. They can also offer you a report on the depreciation rate that will be claimable on your property and when you may claim it. You will then send this report to your account who will claim it on your tax return.
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Working from home has become the new normal. The major advantage that it offers is the greater level of flexibility. However, there is one thing that has no flexibility: no matter where we work from, our tax obligations still remain the same. Did you know that you may be eligible for a depreciation tax benefit for your incurred costs during the COVID situation as well? Yes, you read it right! You can claim certain costs related to work from home obligations. However, it must be noted that this only concerns the people who usually work from an office but due to the COVID pandemic, or any other reason outside their control, are currently working from home. You should also remember that you cannot claim the amount reimbursed in this case.
Methods for Calculating Your Tax Deduction While Working From Home
Taxpayers were generally using two different methods before 1 March 2020 for calculating home office tax deduction, the Fixed Rate Method and Actual Cost Method. And these are still applicable.
But as a result of the COVID-19 pandemic, the Australian Taxation Office (ATO) introduced of the Shortcut Method, which applies to the periods:
1 March 2020 to 30 June 2020 for the income year 2019–20; and
1 July 2020 to 30 September 2020 for the income year 2020–21
According to the ATO, extension in the period is possible. However, this depends on the length of time the pandemic disrupts normal operations.
The ATO depreciation rate under the Shortcut Method is 80 cents per hour. This is for all “running expenses”. While using this method, you must record the corresponding working hours at home.
Methods for Calculating Your Tax Deduction While Working From Home
You should fully do the office work from home and not just the minimal task. The below are items that can be claimed in part as work from home expenses as listed below:
Occupancy expenses like mortgage interest, rent, and other costs.
Heating, cooling, and lighting – this includes various household utility bills.
Home office equipment- this includes computers, telephones, and printers.
Work-related phone calls – this includes phone rentals or mobile usage for office work purposes.
Depreciation in the value of furniture and fittings – you can claim for furniture such as desks and cupboards which are used for home office.
Is There a Need to Follow Any Tax Depreciation Schedule While Working From Home?
With the short cut method, it is not required. In other cases, an accountant can help in calculating the depreciation value. But if you are running a business from home, an expert can guide you in preparing the federal tax depreciation schedule.
What Are the Capital Gains Tax Implications When You Work From Home?
If you are working from home, you do not have any capital gains tax (CGT) implications for your home. This applies when you run a business from home.
Today more people are working from home however, facing certain expenses that weren’t in the picture during the regular times. You can follow the above procedures for achieving the depreciation tax benefits. Understanding tax claims is a challenging process but, the shortcut method gives you a simple calculating option. All you need to do is maintain the record of your working hours and expenses. If in any doubt, contact a tax expert for advice.
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Did you own a property for several years but fail to claim depreciation? If so, this unfortunately also implies that you must have over-paid your taxes for all these years. You can heave a sigh of relief as you can claim back over-paid amount from ATO when you prepare your property depreciation schedule. However, your earlier tax lodgements and personal situation will decide how many years’ tax you can back-claim. You should also seek advice from a professional who will give you detailed information on this front.
How Many Years of Depreciation will you be able to Back-Claim?
As per ATO rules, the law has set some limits for amending your tax assessment. The time limit has been set for two years for individuals and small business organisations. For other taxpayers, the time limit is four years. And the time limit will be calculated as:
If you are a sole trader and get notice of assessment on November 12, 2017, the two-year amendment duration begins on November 13, 2017. It will end after two years on November 12, 2019. You must take everything into consideration when you decide to lodge an Australian tax return.
You will be allowed to file more than one amendment request within a period of the review. It also implies that individuals are permitted to amend nearly 2 years earlier tax returns. If you happen to be the beneficiary of a trust, four years limit for amendments will apply. Additionally, all remaining entities like trusts, organizations, and self-controlled super fund may amend tax returns lodged in the last 4 years as a standard. Depreciation residential rental property helps in reducing your tax liabilities to a considerable extent.
How to Back-claim for Earlier Years’ Depreciation?
When you desire to back-claim for earlier years, you should file a request for an amendment to the ATO. The ATO will not be charge any fee in case you request an amendment. Additionally, you will not be required to send yet another tax return unless and until they ask you to0. You will be able to request an amendment in several ways. You should get in touch with an accountant as they have the expertise and can execute it with the least effort. We can cite an example. For instance, you bought a 2 years old investment property in the year 2017. But you were not aware that you could benefit by claiming depreciation. The good thing is that you will be able to request amendments for your 2019 and 20219 tax returns. You can also claim deductions in your 2020 tax return and in the coming years as well.
You may claim depreciation for the years that you failed to claim. It is worth noting that ATO permits you to backdate depreciation by two years in several cases. You should evaluate all these factors prior to calculating your rental home returns. Also, properties constructed during various time periods must be claimed according to different available methods. There is no one set method for all the properties and, depreciation percentage will be calculated on the basis of the date when construction commenced on the property.
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As the financial year comes to an end, it becomes imperative to get your depreciation ATO tax depreciation schedule sorted. You gain several benefits of securing a depreciation schedule prior to June 30. It will help in enhancing your return and make the most of your investment. It is worth noting that a quantity surveyor report also consists of a schedule of depreciable assets also known as capital allowances. Meanwhile, a different deduction for the fall in the value of depreciating assets in a rental property can be claimed.
Given below are some of the points that you must be aware of the depreciation schedule:
1. Depreciation deduction:
The Australian Taxation Office permits the property owners to seek a claim for depreciation or fall in value as a deduction. Depreciation has been categorised as a non-cash deduction thus meaning an investor won’t need to spend money to be able to make a claim. It is for this reason that depreciation deductions are ignored. And, it becomes an expensive mistake for investors as depreciation deductions present huge taxation advantages. When tax time arrives, property owners should ensure they have claimed all the deductions for which they are eligible. Income-generating property owners must seek claims for property depreciation tax deduction linked to the structure of building along with plant and equipment assets.
2. Claim cost of schedule:
A depreciation schedule has got a one-off expense that continues until the life of the property or for forty years. It will ensure that the owners have claimed their respective depreciation entitlements precisely. It is worth noting that the cost of the depreciation schedule is 100% tax-deductible. One of the major benefits of securing a depreciation schedule prior to June 30 is that investors can claim the fee straight back that financial year. Investors must estimate tax returns in a precise manner.
3. Partial year claims:
In the case that you purchased an investment property and are waiting for the next financial year for claiming a deduction, you may miss considerable savings. Investors will be able to claim partial year deductions for the tenure in which they acquired their properties before June 30. The depreciation values of assets are precisely adjusted in accordance with the period during which it was owned. For instance, if the property was owned or rented for six months, the owner can get 50% yearly deductions.
Investors must arrange a depreciation schedule at their earliest convenience. Deppro quantity surveyors have expertise in preparing depreciation schedules that save our clients lots of money.
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Many commercial property owners aren’t aware that they are eligible to claim depreciation on property. According to a study, approximately 80% of investors miss the benefits of their commercial property and end up losing plenty of money every year in Australia. It is imperative for all commercial property owners to claim depreciation. These deductions can significantly enhance the positive cash flow of an investor and diminish the negative cash flow. We have prepared a list of significant factors that property owners may consider in a bid to earn more from their commercial property.
Given below are the factors about commercial property depreciation:
1. Depreciation and how you can claim it:
According to the ATO, it is necessary for investors to prepare a report of their income-earning from their commercial property. This will prove useful when preparing their income tax assessment. And, property investors of commercial property are eligible to claim depreciation. Depreciation takes place when a property shows signs of wear and tear in its structure, fixtures & fittings over the years. It is considered to be a non-cash deduction which means that investors must not spend any amount to claim it. Property investors must calculate depreciation on rental property in an accurate manner to maximise their claim.
2. Life of a building:
Property owners will also be eligible to claim any latest renovations that took place since July 20 1982 snd, it doesn’t matter if it was carried out by an earlier owner. Additionally, plant and equipment depreciation can be claimed as well, irrespective of age. The instances of plant and equipment may include carpets, and ac units, among others. Expert quantity surveyors will carry out a property inspection and take images and prepare a list of additions made to the commercial property. They will offer an itemised tax depreciation schedule to property investors that include the availability of deductions for a period of 40 years. You may seek a Deppro review from our professionals, in case you encounter any confusion.
3. Depreciation of other items:
While preparing a commercial building property depreciation schedule, it may be tough to work out who is eligible to claim depreciation for specific items. Landlord and the sitting tenant will be able to claim depreciation for any fit-out made to a property. Tenants of commercial properties will be eligible to seek a claim of depreciation for any fit-out that they introduced. It may include blinds, shelving, and carpets, among others. Additionally, owners of a commercial property can also claim depreciation on any installed asset or assets left by a previous tenant.
4. Select a method:
After calculating depreciation, property investors may choose two methods for making a depreciation claim. This includes: diminishing value method and prime cost method – property investors can use either. Deductions will be calculated according to a percentage of balance you leave to subtract under the diminishing value method. Meanwhile, the deduction for every year can be calculated as a percentage of cost under the prime cost method.
You must be aware of how to calculate depreciation for your commercial property accurately to maximise your gains. If you face any difficulty in calculating depreciation, use our Deppro contact number, and call our experts. They will help you calculate it accurately. You may consult their quantity surveyor as well who have achieved specialisation in tax depreciation.
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When one mentions the word hotel, what springs to mind? Cozy rooms, tasty food, well-stocked wine cellars and men and women trying to make their guests comfortable. But behind the scenes, hotels have a lot of wastage (electricity, water and food). This wastage reduces their revenue and income. While hotels might look glamorous on the outside, they too need to save every dollar behind the scenes. One of the less known but very effective ways for hotels to save their hard-earned money is by filing the correct Australian tax return. This blog will tell you four easy ways to legally reduce your tax outlay for your hotel.
Hotel Depreciation Schedule
In case you are in the process of buying a hotel now, then the complete inventory of its assets would already have been made earlier. But you need not lose out on the available tax deduction on account of depreciating inventory/assets. You can still employ the services of a certified quantity surveyor and create a federal tax depreciation schedule. The assessment of different assets of a hotel is more complex than that for a residential property. The assets which qualify as ‘plant and equipment’ in a hotel have a separate listing in the ATO Depreciation rates. That is why a competent quantity surveyor can ensure that any claim you are eligible for doesn’t get missed out on. The quantity surveyor would also ensure that you do not pay tax for the same asset twice.
Make your renovations count
A hotel always needs to look its best at all times. That is the reason hotels undergo renovations or refurbishments quite frequently. As a hotel owner, you need to make sure that your depreciation schedule stays updated always. To ensure this, keep your quantity surveyor informed whenever you are planning an activity. They would advise you what to do with the assets you are replacing, and how to list it in your property report. Many hotel owners make the mistake of sending discarded items/assets to scrap. While the renovation is in full swing, keep your discarded assets aside, and also list out all the new fixtures and fittings being installed. At the end of the refurbishments, the quantity surveyor will make an overall assessment and update your depreciation schedule.
Try to stay within the industry
Like we mentioned before, hotels in particular and the hospitality industry in general, are quite different from others. While looking for a quantity surveyor, try to engage one who has extensive experience with hotels. That way, you will not need to explain your peculiarities to him, and he can easily understand your industry lingo.
Different treatments while buying new
We spoke earlier about situations where you are purchasing an existing property. If you do have a new hotel purchase, then you need to consult your quantity surveyor about how best to treat your assets. This will help you maximise your tax deductions and save money.
If you are buying a hotel or own one, please make sure you get the best possible benefits of tax deductions on account of the depreciation of your property.
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